MP3.com Failed to Disclose Lawsuit

Securities: In IPO papers, online music firm made no mention of being a defendant in copyright infringement complaint.

MP3.com Inc., the popular online music company that plans to go public, did not disclose in its regulatory filing that it was a defendant in a $20-million copyright infringement lawsuit, court documents show.

PlayMedia Systems Inc., a Los Angeles-based firm that makes digital music technology, named MP3.com last month as a defendant in its case against rival music software firm Nullsoft Inc. Michael Robertson, MP3.com's chairman and chief executive, was served notice of the complaint April 28, according to court documents.

PlayMedia's suit, initially filed in U.S. District Court in Los Angeles in March, claims that Nullsoft founder Justin Frankel did not pay to use software code developed by PlayMedia.

MP3.com heavily promotes Nullsoft's Winamp player and allows visitors to download the software. PlayMedia has accused MP3.com of building its success in part through this support and distribution.

U.S. District Judge A. Howard Matz signed an order April 23 adding MP3.com as a defendant.

Employees from Janney & Janney Attorney Service Inc. repeatedly tried to contact Robertson at home to serve him with court papers, according to a signed declaration. At 7:10 a.m. April 28, a Janney & Janney employee served Robertson at home, commenting that he "looks like Bill Gates' younger brother," according to the document.

On Monday, MP3.com officials said the company had learned of the lawsuit only that morning, when PlayMedia issued a news release. When told about the discrepancy, they declined to comment.

In its Securities and Exchange Commission filing Friday, MP3.com said it plans an IPO later this year that would raise about $115 million. It said it was not involved in any material litigation.

"They should have mentioned the lawsuit," said David Walters, executive vice president of investment banking firm Cruttenden Roth. "But [Robertson's] got an easy defense: They haven't done anything wrong because they haven't sold anything to investors yet. Or their attorneys could have thought this was a frivolous lawsuit."